Post-crisis patterns of external adjusment in some small open economies Financial Adjustments to External Shocks: Empirical evidence from some EU-members and transition countries (1993-2014)

Abstract

In this paper there were two types of international financial adjustment patterns identified: type-A, where highly independent monetary policy and low domestic currency stabilitywas the preferred path; and type-B, where monetary policy independence was given upand currency stability was acquired. We argue that whichever type of external financialadjustment the preferred path may be, the ability to resist major external shocks simultaneously depend on a handful of other macro prudential factors (e.g. fiscal and debt service performance), too. A country may not be euro-zone member and still do well in theshock resistance department, like the Czech Republic. For Hungary, euro-zone membershipwould sure bring better shock resistance capabilities, yet, it would in no way offer solutionto the existing deficits in its levels of international competitiveness and productivity.